What Jerry Said ...

|Peter Boettke|

When I try to make the distinction between knowledge and information to my students I often use the internet as an example.  There is a ton of information available, I argue, but very little knowledge.  The transformation of information into knowledge requires things like interpretation and judgement.

Bottom-line, there is a lot of nonsense that gets passed around because skillful interpretation and refined judgement is lacking on the part of participants.  A case in point is often discussions of the philosophy of science, and the discussion of the scientific status of Austrian economics.  Elementary school versions of what constitutes science, including a very unsubtle reading of Karl Popper's various discussions, get passed around with very little understanding of how the real practice of science takes place.  McCloskey has long distinguished between the "official methodology" of economics and the "unofficial, but daily practice" of economics.  I have often told students that they should think like a Misesian but write as a Popperian in order to negotiate the gap between the official rhetoric of the discipline of economics and the actual practice of doing economics.

Such advice is purely pragmatic and fails to address the sort of deep philosophical issues which Greg Ransom rightly points us to, and it also side-steps the profound issues that Mises and Hayek wanted us to contemplate with respect to a discipline focusing on complex phenomena.  So I admit the limitations of my position, and also the "inconsistency" that might mislead readers of my (or my students) work because on the one hand I have spent a significant part of my professional life writing methodological essays and discussing implications of the philosophy of science for the practice of economics, while also spending my time "doing economics" and especially applied political economy as if none of these methodological issues were critical to the exercise (at least rhetorically).  Personally, I actually think the inconsistency is only apparent, and in fact, what I am doing follows the lead of Mises, Hayek, Buchanan and Kirzner.

And, I should also add Fritz Machlup.  Jerry O'Driscoll sums up the position I hold on the nature of economics as a science better than I could state.

Comments

[Mario Rizzo]

So I wonder about the status of Mises's praxeology. Are *deductions* from the action axiom a necessary basis of economics as a science? Apart from the matter that one does not get very far along the lines of pure deduction (and therefore this is not sufficient), is praxeology a *necessary* part of economics as a "science"? It seems that based on Machlupian definition of science it is not.

[Roger Koppl]

What you said years ago, Mario. Praxeology is our language for describing action. It is therefore "a priori," although "true" only because that's the language we're using. As Hayek showed at the end of The Sensory Order, however, we can't adopt a language that makes no use of folk psychology. Thus our language for describing human action has to be pretty much along praxeological lines. We can and should tweak Mises' praxeology to reflect developments in psychology, especially (IMHO) evolutionary psychology. But the tweaked theory will still look pretty much like the Misesian original because any description in "physical language" will leave out the meaning of the action.

[Lee Kelly]

Nothing good ever comes from arguing what science *really* is.

The more interesting question, in my opinion, is how can hypotheses be criticised? Are all open to criticism by empirical testing? If not, why? Is this an important distinction? Etc.

Somewhere in there is a fuzzy line where I would prefer to seperate scientific hypotheses from everything else (if only to give the term "science" a smidgen of informative content). However, the matter is so politicised, with people jockying for the authority of science while denying it to their opponents, that my preference is irrelevent.

[Pietro M.]

There's a short comment in the first chapters of Human Action stating that the apriori has an evolutionary origin: men think the way they do because they have evolved in a certain way. Almost no other reference to evolution is present in Mises's writings, as far as I remember. I hence wonder whether the lack of institutional evolutionism in Mises, despite Menger's and Hayek's contributions to these topics, was due to a real theoretical and philosophical divide or simply to a difference in focus and interests.

[Jerry O'Driscoll]

Is there any substantive theorem or proposition in Human Action whose validity depends on Mises' stated methodology? Alchian made the point that all of economics depends on the proposition that demand curves slope downward. The epistemological status of the law of demand doesn't matter for the truth of Alchian's theorem. We can all do economics without ever agreeing on methodology. I take that to be Pete's point.

[Lee Kelly]

Pete, Jerry,

What would a "legitimate" criterion demarcating science from non-science be like? Can you specify what you expect such a criterion to achieve? A criterion can only be inadequate according to some standard by which it is judged, but scarcely are any such standards explicated by anyone with regard to these matters. Usually these standards of judgement are merely implicit in proposals and critiques, and must be teased out by careful analysis.

[Lee Kelly]

The obsession with methodology is often a veiled form of the genetic fallacy, in my opinion.

A true proposition is no more or less true because of the method by which it was discovered; it may be more or less justified according to some epistemological method, but who gives a hoot. Justification is overrated. Epistemology is overrated.

[Greg Ransom]

The whole "action" / belief - desire model is extremely limited and deeply pathological in many dimensions.

Try making sense of the mental causation model assumed in the "action" / belief - desire model, and attempt to make sense of "meaning" entities in the head at the core of the model.

Endless pathologies and intractable puzzles are generated if you take the model too seriously as a "scientific" model, or a full explication of how we capture the order contained in a shared ways of going on together -- and the very small subset of these which can be limned in natural language or a "scientific" language of "behavioral science" or "economic science".

Hayek's works on shared but unarticulated inherited patterns of common behavior in his _Studies_ is very helpful in betting a deeper sense of how we "know" human behavior -- as equally important is the work of Wittgenstein on shared ways of going on together, and how explanations end somewhere -- i.e. in shared practices and shared natures, e.g. shared ways of going on together.

This Hayek / Wittgenstein work also exposes the deep limitations of the literary interpretation model of "knowing" about shared practices and shares ways of going on together -- public language symbols and "meanings" are NOT at the base, shared patterns of behavior and ways of going on together beyond the language matrix are what is at the base, as shown by Hayek and Wittgentein.

This literature model is a false "escape" and "solution" for economics and the Austrians.

[Greg Ransom]

Alex Rosenberg provides a very concise explication of some of the core problems with the action / belief - desire mental causation model _specifically for students of economics_ in several of his recent books on the economics and the philosophy of economics.

The literature on all this, of course, is vast, and brings in all sorts of special issues about the relations between "mental states", "meanings", causation and the nature of explanation, then nature of language, and the character of logic, etc.

[DG Lesvic]

Prof Boettke says,

"think like a Misesian but write as a Popperian."

Mises said the same thing, but with a caveat:

"Economics…adopts for the organized presentation of its results a form in which aprioristic theory and the interpretation of historical phenomena are intertwined…this…procedure…has given proof of its expediency. However…uncritical and superficial minds have again and again been led astray by careless confusion of the two epistemologically different methods implied.”

Mises, Human Action, 3rd Ed., P 66

Isn't the dispute between those who, like Mises, would maintain the distinction between the epistemologically different methods implied and those who, like Prof Rizzo, would blur them?

Isn't it between those who would maintain the discipline of the science and those for whom anything goes?

Prof Rizzo has expressed his dislike of clear definitions and distinctions.

But how can there be clear thinking without them?

How can there be economics if it can buried beneath every imaginable distraction from it?

[Mario Rizzo]

"Prof Rizzo has expressed his dislike of clear definitions and distinctions."

Nonsense.

[DG Lesvic]

And isn't there also some distinction between those who, like Prof Boettke, permit dissenters on their blog and those who, like Prof Rizzo, do not?

[DG Lesvic]

In the thread below, There Is Only Good Economics....Prof Rizzo wrote:

"Your mantra 'There is only good economics' has its purposes (like keeping obvious junk out of economics). But I do not think economics is a science in the sense that there are narrow and unambiguous criteria of 'goodness' except as arbitrarily imposed by know-it-all 'top brass' who seek to preserve their own status within the profession. This is not to say that there are no criteria of 'goodness' that make sense but they are 'broad' and will admit quite a number of different approaches."

[DG Lesvic]

In other words,

any narrow and unambiguous criteria are those imposed arbitrarily, and any criteria are broad and will admit of a quite a different number of interpretations.

[DG Lesvic]

In A Tale of Two Schools...., Mark Skousen wrote,

"Economics has become 'a new imperial science invading like an army the new frontiers of politics, law, crime, religion, sociology, history, and Wall Street.'"

That is in the Chicago School, and certainly not the Austrian School of Mises. So, if you want that, why not join the Chicago School of Friedman rather than remake the Austrian School of Mises, and leave Mises with no place at all?

[Steve Horwitz]

That will be quite enough Mr. Lesvic. If you want to go after an individual, you won't be doing it on this blog. That's what your own blog and your own property is for. It's not gonna happen here. Consider yourself warned - keep it up and you'll be banned here too.

And it won't be because we don't permit dissent, but rather because we don't suffer fools lacking in elementary social skills.

[Lawrence H. White]

I want to endorse Pete's "think like a Misesian but write as a Popperian" as excellent advice. Develop your economic ideas in an armchair, or wherever, but offer them to the profession as explanatory conjectures about real-world phenomena. And think about what evidence would "falsify" them (persuade you that your theories don't apply).

[Lawrence H. White]

Jerry O'Driscoll asked: "Is there any substantive theorem or proposition in Human Action whose validity depends on Mises' stated methodology?"

If by "validity" Jerry means "logical validity", then yes, that does depend on correct deduction from premises (Mises' stated methodology). But I take it Jerry means "value in explaining real-world phenomena". In that case, no, there are other ways to arrive at useful propositions, as Jerry notes. But there's a caveat: propositions that can't be re-expressed in terms consistent with methodological individualism are black boxes that don't really *explain*.
Jerry is right that we can all do good economics without agreeing on the epistemological foundations of economics. Indeed, Mises disagreed with Menger on those foundations, and Hayek disagreed with Mises.

[DG Lesvic]

Prof Horwitz,

You have just accused me of being a fool lacking in elementary social skills.

In the first place, had I said that about anyone else, you would have banned me.

In the second place, as I told you, several years ago, at the time of your first such lecture to me, science isn't a tea party, but a search for truth, regardless of whose learned goes get stepped on.

The truth is its own defense.

What have I said that is untrue or irrelevant?

[DG Lesvic]

Prof Whtie,

I don't know if you remember me, but I have certainly remembered you, in the introduction to my book:

"Sincerest thanks to Janice Allen of Dissent School, and to Larry White, who opened my mind by kindness. I might even try that someday."

But I can't make any sense out of what you just said above.

There is no difference between "logical validity" and "value in explaining real-world phenomena," and no other "ways to arrive at useful propositions."

As Mises put it,

"Logical thinking and real life are not two separate orbits. Logic is for man the only means to master the problems of reality. What is contradictory in theory is no less contradictory in reality."

[Leslie Marsh]

I would like to suggest that in marking the difference between knowledge and information AND of course error, the justified true belief tradition of theorizing originating in Plato, cannot be ignored (Gettier cases aside).

[Steve Horwitz]

You are right Mr. Lesvic. But you know what? That's how property works. If you think I'm being unfair to you or inconsistent, please feel free to take your business elsewhere. If others here think my inconsistency is more troubling than your presence, they will surely take their business elsewhere as well. I'm willing to risk it.

And with that, I'm done engaging you over the rules. I've handed you the rope, it's your decision whether or not to hang yourself.

[DG Lesvic]

Is economics an amateur or professional science?

By banning its critics, the profession answers the question.

Go ahead, and answer it, Prof Horwitz, and for all your colleagues here, too, if they so wish.

[Barkley Rosser]

DG,

Hey, you sent me off to a North Korean jail. They keep trying to wash my brain, but there is just too much dirt in it for them to succeed, including math and vague ideas of "professionalism," deluded as those certainly are...

[Jerry O'Driscoll]

Larry White said that "propositions that can't be re-expressed in terms consistent with methodological individualism are black boxes that don't really explain." I certainly agree, but Mises' methodology is more than methodological individualism. To be explantory, must all true economic propositions be expressable as deductions of the action axiom? That I take it was Mario Rizzo's question in the first comment in this string.

[DG Lesvic]

Barkley,

I'm glad that you can still get messages out of your North Korean jail cell. I hope I can do as well in Prof Horwitz' doghouse. But if you don't hear any more from me in the next few days, contact Hillary Clinton for me.

[Roger Koppl]

Jerry,

For my money dear old Machlup nailed this issue in an interview for the Austrian Economics Newsletter. I bet it's on the MI website. he said something like this, as I recall: Mises made a big deal out of apriorism, as do his critics and defenders both. But really, if you've got a "theory," then you are construing things in a particular way and that construal, that construction, is perfectly "a priori" simply because it is constructed. So apriorism is really a non-issue.

I think that's pretty smart. If your reasoning is really tight, the conclusions follow from the premises and the "test" checks whether the premises hold in this or that case. If your reasoning isn't so tight, then the "test" may expose a slip between premise and conclusion. Either way, we need to tack between "theory" and "history," i.e., between thinking and looking, if we are to end up with true, helpful, non-trivial things to say about the world. That's what we really do, think, talk, look, count. Repeat.

[Rafe Champion]

Discussion of these issues was spiked by Imre Lakatos when he invented falsificationism to destroy the Popper program in a hostile takeover bid. The baton of falsificationism in economics was taken over by Latsis and Blaug and others, resulting in several decades of possibly enjoyable but ultimately fuitless kibitzing and Popper bashing. One of these festivals was in Amsterdam "The Popperian Legacy in Economics" where the editor noted that most of the time was spent (without a conclusion) on the need for a better demarcation criterion. More of this happened in the isles of Greece, funded by Latsis senior who was a shipping magnate.

The testability criterion is a ladder, an injunction to take evidence seriously. When you have decided to use evidence critically you can throw the ladder away because you don't need it any more. It is like the steering wheel of your car. In a market where all the cars have steering wheels you don’t need to tell car buyer to be sure it has got one. But in the market of ideas where a lot of people are still driving cars without steering wheels (not using evidence critically) then the testing criterion still has a point. Still, the real work is only starting when you throw away the ladder.

One of my projects at present is to seek and destroy the roots of the intellectual terrorist network that spread the myth of Popperian falsificationism. I fear that one of the villains is Alan Chalmers, who supervised my thesis on the Duhem-Quine problem. Others are Anthony O'Hear, and of course Lakatos, Feyerabend and Kuhn.

BTW Greg, stop tellling us about Wittgenstein and show us what he or some follower actually did. Gellner wrote that the real work (critical discussion of alternatives) starts AFTER you identified forms of life. Tell us again about Wittgenstein's plan to move to Russia in the 1930s to breath morally purer air.

As for what Popper actually did in the social sciences, not a word at Amsterdam. Another project is to bring together all the main things that Popper published about the methods of social sciences and economics in particular, just in case it is interesting and helpful. Maybe someone has already done it, certainly Ian Jarvie made a start.

Major resources appear to be Malachi Hacohen's biography, The Poverty, The Marx volume of The Open Society, his paper on situational analysis and the rationality principle, and the opening paper in the debate with Adorno. This will not solve any problems because Popper dropped the ball more than once in the game of economics but he was not a dumbass and we can probably learn more from the mistakes of a genius than from the successes of a normal scientist.

The bottom line is that Popperism supports the Austrian approach (good economics)in some very important ways. Warning, due to hostile referees this paper did not make the cut for the published proceedings of the Vienna Conference.

http://www.the-rathouse.com/RC_PopperPaper.html

[DG Lesvic]

Roger,

Mises did not exclude history from economics, but just kept it in perspective.

"Experience merely directs our curiosity toward certain problems and diverts it from other problems. It tells us what we should explore, but it does not tell us how we could proceed in our search for knowledge. Moreover, it is not experience but thinking alone which teaches us that, and in what instances, it is necessary to investigate unrealizable hypothetical conditions in order to conceive what is going on in the real world."

[Roger Koppl]

"Mises did not exclude history from economics, but just kept it in perspective."

Ya think?

[Jerry O'Driscoll]

To Roger's last comment: I think it would be useful to distinguish between theory and models. Models are expendable, theory not. We don't pretend to test the law of demand, but presuppose it. When he said "theory," I think Mises meant pure theory. Many economists talk loosely about their "theory," but really mean their model.

[Rafe Champion]

In Amsterdam a model builder called Mary Morgan said that they are not doing anything Popperian like testing, they are just getting models to work. The question is: if you are not testing either a theory or a policy, what is the point?

Maybe you are developing a descriptive model as a preliminary step towards testing something, in the way that natural scientists can work for years to refine a measuring instrument, but there is a bigger purpose that you need to understand unless you are just working as a highly skilled technician.

The best part of the Amsterdam proceedings is probably Arjo Klamer's account of the way he became a baseball fan during a spell in the US. Someone should have told him about Jacques Burzun's story that you have to understand baseball if you want to understand the American people.

[Barkley Rosser]

Jerry,

But in fact upward-sloping demand curves have been found. You have not heard about the Chinese rice case recently pubbed on in the AER? Or can this not be the case due to apriorism?

Rafe,

Mary Morgan is not so much a model builder as someone who studies the building of models. She is primarily a historian of econometrics.

[Jerry O'Driscoll]

I don't know what to make of the claim that demand curves are upward slopping. If they are, then there is no economics. There is nothing else to discuss and this and all other sites need to just shut down.

[DG Lesvic]

Roger,

Perhaps I should have made it clearer that I was quoting Mises.

Prof O'Driscoll,

I think you have it just right.

I'm not sure, but doesn't theory refer to a broader and theorem to a narrower concept, e.g., the whole theory of economics and the particular theorems of it.

And isn't a model simply a non-verbal, numerical or symbolic, illustration of a theorem, augmenting but not replacing the essential verbal exposition of it?

Barkley,

What is an upward sloping demand curve?

[Barkley Rosser]

Jerry and DG,

Hmmm. Maybe this is the nub of all this huffing and puffing about empirics and apriorism. Let me approach this from totally garden variety neoclassical economics. In standard micro theory, it is perfectly possible for a demand curve to slope upwards. We are talking about a case of seeing which way the quantity demanded for something changes if the price changes, ceteris paribus (importantly including holding expectations constant). Let us have this be a change in equilibrium price due to a shift of the relevant supply curve due to something that itself will not shift the demand curve.

So, conventional theory derived from the Slutsky equation (eeeek! some math, DG), splits the change in quantity demanded into two parts: the substitution effect and the income effect. While the substitution effect always works to make the relation between price and quantity demanded by negative, the income effect will not tend to do so if the good is inferior, and we know empirically that there are many inferior goods. However, it is indeed true that substitution effects are usually stronger than income effects, and as long as this is true, a demand curve will still slope downwards even for an inferior good.

However, whether or not the demand curve for a particular inferior good actually sloped downwards is ultimately an empirical question, if one that may be difficult to resolve in practice. Many supposed "Giffen goods" are not so, with indeed the entire literature confused due to Samuelson making up the tale that Major Giffen was talking about Irish potatoes when in fact, Marshall cited a report by him on about bread (although all that report showed was that bread in Victorian England was an inferior good, but not a Giffen good). Many other examples have been posed, most of them eventually shown either not to hold or not able to be proven to hold. However, a recent paper in the AER (sorry, forget the reference right now, but will look it up toute de suite), showed fairly definitively that at least in certain locations in China at a certain time, rice was indeed an example of that famous entity that lurks in the textbooks.

Why the existence of such an entity should lead to there being "no economics" is beyond me, anymore than the fact that fishery or individual labor supply curves can bend backwards should lead to such an outcome either.

[Barkley Rosser]

The reference is Robert T. Jensen and Nolan H. Miller, "Giffen Behavior and Subsistence Consumption," American Economic Review, 2008, 98(4), pp. 1553-77. They usefully distinguish "Giffen behavior" from "Giffen good," given that a particular good may be associated with "Giffen behavior" in certain ranges of a demand curve and not others.

[DG Lesvic]

Barkley,

I haven't any idea what you're talking about.

So, just tell me briefly: do I need a dictator or not?

[Pietro M.]

I read Mises throughly but not recently, so that I'm going to miss many details. However, my view on misesian epistemology is:

Economics studies economic reality, which unfortunately is so complex that pure empiricism is impossible.

A possible consequence is that in understanding reality reason is useless, or we must look for an alternative to empiricism: we can consider apriorism.

Apriorism is only a form of logical analysis: it says that *compensated* demand is always falling with prices; that if I need a hammer today the mere fact of having the monetary value of a hammer in my bank account doesn't solve my problems, etc. Apriorism is what everybody studies as introductory microeconomics plus some other logical consequences of economic calculation, etc.

Apriorism doesn't suffice to understand reality, otherwise empiricism wouldn't be a problem. It is only a set of mental tools, such as substitution effects and capital theory, which can help understanding reality.

The domain of apriorism may be more or less limited: for instance, in order to apply calculation theory, the empirical knowledge of living in a complex world with a price system is required. This is not apriori.

The need of empirical hypotheses to apply the mental tools of economic theory is a problem which can't be solved a priori: so, a priori theory can be irrelevant (for instance, economic calculation in a primitive society) or relevant (in our society) for contingent factors we cannot judge apriori.

At the end, we have two realms: a set of logical tools which have some power in helping understanding reality, and a complex world which we cannot understand without those tools and we cannot *fully* undestand even with them.

There is a problem of terminology in that most economists nowadays consider "theory" as an explanation directly applicable to economic history or directly comparable with stylized facts. In this sense, saying that theory is apriori is as misesianly absurd as saying that history does not present epistemological problems of its own with respect to theory. Mises had a more limited view of what constituted theory, but nominalistic debates are useless: let's define theory as the set of logically consistent mental tools based on realistic hypotheses and history as the neverending (hopeless?) attempt of circumventing the complexity of reality through these tools.

I would stop believing in apriorism when someone showed me that a higher price for gasoline increases its consumption coeteris paribus. I would become a radical apriorist if someone showed that the whole edifice of economic theory can be summarized without logical jumps out of simple axioms of very general validity.

I believe that the truth is in the middle, and that the distinction between Mises and the rest of the world is more a problem of terminology (Mises's was incredibly idiosynchratic) than of substance. However, as I haven't been reading Mises's writings on these topics for a couple of years, most likely I'm forgetting something of relevance.

[Dave Prychitko]

Barkley:

This is, as I'm sure you know, why Friedman adopted the income-compensated demand curve, which must always slope downward ("The Marshallian Demand Curve," Essays in Positive Economics).

[Roger Koppl]

Pietro,

You say, "the distinction between Mises and the rest of the world is more a problem of terminology." I agree. This is an important point that defenders and critics of Mises miss. Both defenders and critics have an interest in exaggerating the distinctiveness of Mises' methodology. Poor Lu!

Jerry and Barkley,

I think Jerry can sign onto the reality of Giffen goods. Battalio and others had a great paper on "upward sloping rats" circa 1985. They showed that rats can exhibit Giffen behavior. When Austrians offer "demand curves slope downwards" as some sort of ultimate truth, they are really just invoking Hayek's argument from "Economics and Knowledge." There is an "a priori" bit to price theory, namely, the "logic of choice." The empirical bit concerns learning. We get the apriori bit by thinking carefully. An apparent falsification might suggest I've gone wrong somewhere, but the problem is not likely to be in the pure logic of choice. Strictly speaking, it is indeed wrong to express the point by elevating the "law of demand" to an absolute truth. But I think the problem is just how we express ourselves, not the substance of our position.

[Dave Prychitko]

I recall that Battalio et al paper. I'd like to see further work on the possibility and consequences of lexicographic preferences among rats. :)

[Jerry O'Driscoll]

Actually it was Armen Alchian who said that all economic theory depends on the law of demand. I always thought he was being Misesian in saying that without carrying the aprioristic baggage. All science assumes there are underlying laws to be discovered. If not, then not.

[DG Lesvic]

Poor Lu, indeed, and poor all the rest of us!

Years ago my daughter and I attended a concert at the LA Phil featuring a Benjamin Britten work, an allegory about the horrors of World War II, represented by hordes of rats scurrying about. The music itself was about as pleasant as the theme, and throughout it looked at each other with incredulous dismay and wonder at what the hell we were doing there.

That was music?

And you people, the Benjamin Brittens of economics, with rats in your belfry.

That's economics?

Let me out of here!

[Dave Prychitko]

DG:

The door is just a keystroke away!

[DG Lesvic]

For those who don't know how to handle it, a little learning can be a dangerous thing, and a lot of it a disaster.

[DG Lesvic]

A message to Mises, in case he's seeing all this:

Don't worry about your great work being wasted on people such as this. We're not all like that.

[Dave Prychitko]

Jerry is surely correct about Alchian. His six postulates about human behavior directly lead to the demand curve or, as he introduces it in his text, the marginal personal value curve. He has a nice clear discussion of this in Exchange & Production. Whether those postulates are deduced or simply stipulated assumptions, it is evident that Alchian considers the downward-sloping demand curve to be the foundation of economic analysis.

[Dave Prychitko]

Forgive me, Lu. I know not what I do... for a quarter of a century.

[Pietro M.]

Arguing with a PhD student of methodology I explained the apriori with a very simple example.

A: "The high price of oil increased the demand for SUVs in Russia, despite oil being heavily complementary to that kind of cars, so the substitution effect is wrong"

B: "No, the demand for SUVs increased despite the substitution effect, because Russia is an oil exporting country and the price of oil had an income effect"

Apriori we can't say anything about the russian demand for SUVs, because the real phenomenon has too many determinants, including changes in tastes and expectations. (The axiom of action is true ex ante, and gives no assurance of ex post success: in a totally chaotic world it would be irrelevant, more or less like reason itself).

Apriori we know that the sentence A is wrong, because it goes against the logical properties of the substitution effect.

However, sentence A shows that in a complex world it is fairly easy to make coeteris paribus assumptions (like "there is no income effect") and derive wrong conclusions.

This epistemological subtlety (it is subtle for me, at least) squares well into the misesian framework. Maybe it's all obvious and maybe it's also involuted, but it wasn't obvious when positivism was in its heyday, as it was when Mises was writing.

[Peter G. Klein]

Back to Giffen goods: I've often been asked by students how Austrians handle Giffen's paradox, and recently wrote a short note about this. If anyone's interested, you can read it here:

http://web.missouri.edu/~kleinp/misc/giffen.pdf

I'd certainly appreciate any comments.

Regarding the Battalio et al. paper on rats, I once proposed a similar experiment with undergraduates, but our campus IRB objected to the cages.

[Dave Prychitko]

Peter:

I like your approach. I think the distinction between quantities of a homogeneous good vs bundles of heterogeneous goods is an important one. But your meat and potatoes answer to the Giffen paradox falls back into bundles of different goods. The frozen dinner example then returns to single units of a homogeneous good -- the dinner is the dinner. I'm a little confused here.

[Peter G. Klein]

Dave, yes, that's exactly the point (perhaps not very clearly expressed). "Giffen-like" behavior doesn't contradict the law of demand because it arises only the context of heterogeneous bundles. If we did have homogeneous bundles, like my frozen dinners, then the law of demand would hold as usual.

[Roger Koppl]

Peter,

I thought the law of demand applies only when agents choose among heterogeneous bundles. The opposite case would seem to be that the demander can buy only one good and the question in just how much. But then the law of demand is not informative and, anyway, depends only on non-satiation. Am I missing something?

[Peter G. Klein]

Roger, not in Menger's formulation, which was the point of my note.

[Roger Koppl]

I confess, Peter, I'm not going to go back to Menger and so on, but I certainly didn't interpret Menger that way. And I really don't see the margin in saving the law of demand from all exceptions. It ain't always true. So what!

[Barkley Rosser]

DG,

I think Britten's War Requiem is magnificent, and it is about WW I, not WW II.

For Others,

It is not utterly impossible for even an income-compensated demand curve to slope upwards, although I know of nobody arguing that such happens, certainly at a market level. It involves some sort of non-rational, non-optimizing behavior where someone gets onto a backward-bending portion of an indifference curve. But, in the end, this is an empirical matter as well.

In my own view, the one economic law that seems to hold universsally is a properly formulated version of the law of diminishing returns (or of marginal productivity). I know of no exceptions, although as with the income-compensated demand curve sloping downwards, this is also ultimately an empirical matter.

[Peter G. Klein]

Barkley, the point of my note is that what Menger, Böhm-Bawerk, Wicksteed, Mises, Rothbard, etc. call the "demand curve" is a different construct from what neoclassical economists call the "demand curve." Same term, different animals. The former cannot be upward sloping, the latter can.

[Peter G. Klein]

Barkley, the point of my note is that what Menger, Böhm-Bawerk, Wicksteed, Mises, Rothbard, etc. call the "demand curve" is a different construct than what neoclassical economists call the "demand curve." Same term, different animal. The former cannot be upward sloping, the latter can.

[Barkley Rosser]

Peter,

Did Menger talk about clusters of complementary goods being increased together as you described i in your example of frozen dinners with fixed ratios of meat and potatoes? What happens if people become meat and potato addicts and want more and more meat and potato combos as they get more and more meat and potato combos?

[Jerry O'Driscoll]

Discussions of Giffen goods often get detached from the means/ends framework. Wants are the ends and goods a means. If you follow through the analysis that way, the paradox is seen in another light, if it doesn't disappear entirely.

[Peter G. Klein]

Alas, they didn't have frozen meal combos in Menger's day. (Poor things didn't even even have microwaves.)

Menger and his followers have not (to my knowledge) addressed the bundling issue directly. I don't think they've written on addiction, but I presume addiction to bundles would be treated the same way as addiction to single goods, as an intertemporal change in preferences.

[Pietro M.]

What is Wicksteed's fruit market example?

I believe that there is no major difference between austrian and "neoclassical" choice theory, except that the latter stresses consumer equilibrium and infinite divisibility, whereas the former stresses the means-ends approach to interpreting human action.

What I can show in one framework I can show in the other and viceversa, and this for me proves equivalence (like describing a linear stationary system in the time or in the Laplace domain).

If I have a full ordinal ranking of choices between two goods I can draw the indifference curves (well, indifference "bands"); If I have indifference curves, I can derive ordinal rankings.

For what concerns indifference curves, it is true that they are unobservable, that doesn't mean that they can't be conceived.

[Peter G. Klein]

Pietro:

http://lmgtfy.com/?q=wicksteed+fruit+market

[DG Lesvic]

Ya, fruit market example.

"The Waste Land of Experts, each knowing so much about so little that he can neither be contradicted nor is worth contradicting.”

G.M. Young, Victorian England, Portrait of an Age, P 160, cited by Hutchison, A Review of Economic Doctrines…, P 31

[DG Lesvic]

Confusion is complicated, economics simple, and, if it isn't simple, it isn't economics.

It is precisely because the discussions here are so confusing that they aren't economics, and because they cannot think clearly that they cannot write clearly that the "experts" here can neither be contradicted nor are worth contradicting.

[DG Lesvic]

“Economics must not be...left to esoteric circles."

Mises

If you really have something to say, and wish to share it with the rest of us poor slobs, here's how to do it.

First, you have to tell us exactly what you're getting at, that Mises believed one thing and you believe another, and then at exactly what point you depart from Mises, then, take us step by step, and in our language, not yours, through your chain of reasoning.

And if it isn't worth the bother of your doing so yourself, it's hardly that of anyone else trying to do it for you.

[Steve Horwitz]

Lesvic,

You're reverting to the behavior that got you banned in the past. If you continue to post things like this that are non-responsive to the conversation, it will be treated as spam and you'll be banned. Insulting our guests is not appreciated.

[Matthew Walther]

Mr Lesvic:

Like you, I am a casual reader of this blog. Everyday, no matter the topic or subject of the post, I read your bizarre non sequiturs about God knows what in the comments.

Like you, I am not an economist.

Ergo, I do not pretend to tell professional economists that they know nothing about topics, issues, &c., that they have studies for decades and about which they have published articles in academic journals and entire books.

Like you, I am not a contributor to this blog: I am a visitor.

Ergo, I do not make outrageous demands of those responsible for its content and I certainly would not insult them and then complain when they threaten to remove my posting privileges.

Even if you have no respect for the "professionals" who run this insightful weblog, at least consider your fellow "laymen" and either tune in peacefully and respectfully or tune out.

[DG Lesvic]

Prof Horwitz,

Since it is hardly "non-responsive to the conversation" to tell you that I couldn't understand it, and how I think you might help me and others of my limited capabilities to do so, whatever I am guilty of, it is certainly not being "non-responsive to the conversation."

Insulting your guests is another matter.

That is irrelevant in a scientific forum, and relevant only in a mutual admiration society.

So, go right ahead and show us just which this is.

[DG Lesvic]

Mr Walther,

Why would any real teacher object to a student's telling him that he couldn't understand what he was saying? Wouldn't a real teacher want to know that, and correct the situation? Would a real teacher take humbrage and threaten to throw the questioning student out of class?

As to who is an economist and who is not, being paid or not being paid for it has nothing to do with it, nor does the degree of expertise. What matters most is the scientific attitude, the questioning, challenging attitude, and the encouraging attitude.

The question remains: is this a scientific forum or a college of cardinals?

We're about to find out.

[DG Lesvic]

My, but how the sheep resent anyone else who strays from the flock.

Now there's something you can banish me for, Prof Horwitz!

[DG Lesvic]

Hasn't it ever occurred to any of the Great Minds here that the real reason you can't stand what I say is that it's true?

[DG Lesvic]

And, conversely, why your insults don't bother me.

[Dave Prychitko]

DG:

I do lecture to my undergraduate micro students on the Giffen good paradox, as well as decompositions of the income and substitution effects. All of us who teach intermediate micro do that. Those students who have been acquainted with this subject have the potential to understand the comments on this particular post.

So look, you said in comments on earlier posts that you didn't understand math and formulas. Well, we do, including undergraduates. You said you don't even know what a demand curve is. Freshmen economics students do. You demanded that we speak in English. All the comments above do.

If what you say is sincere, you simply don't have an adequate study of economics to profit from this blog. You simply do not understand the conversation. You admit that, and you demand that we lower the level of this blog for you -- for someone who doesn't even know what a demand curve is. Well, that ain't gonna happen.

This is not an insult of your abilities, it is an informed observation. This is also my final reply to your comments.

[Josh]

Steve, just ban this DG fellow. He really takes away from the conversation when I have to skip over his pointless outbursts and hollow grandstanding every other comment. If he wants to complain that no one understands him, he can go down to the skate park with all the other angsty teenagers and listen to Good Charlotte.

[DG Lesvic]

Prof. Prychitko,

You needn’t worry about insulting my abilities, for I’m not a soprano.

You said that this was your final reply to my comments, implying that your mind was closed to them, and everyone else’s mind ought to be closed to them, and that this was not science but faith healing.

I shall proceed nonetheless on the assumption that there are scientists here, and whether or not you join them will be up to you.

You said that it appeared that I didn’t have “an adequate study of economics to profit from this blog.”

If I don’t, not many people do. I have been studying economics since before, I would guess, even the parents of your students were born, and have a library on the subject that I think even you would admire, and including not one but two worn out copies of Human Action. If that is not an adequate study of economics to profit from this blog, is the fault with the study or with the blog?

Was there anything wrong with the study of Human Action, and particularly this passage from it?

“Economics must not be relegated to classrooms and…remain an esoteric branch of knowledge accessible only to small groups of scholars and specialists….It is the main and proper study of every citizen.”

Would you confine economics to your classroom or share it with every citizen?

And are you relevant or irrelevant to the world outside your classroom?

You said that you do lecture your students on “the Giffen good paradox, as well as decompositions of the income and substitution effects.”

That’ll sure shut the Democrats up!

Have you ever told your students that taking from the rich to give to the poor cannot reduce but only increase income inequality and “social injustice?”

You said that you and your students all understood mathematics and demand curves.
But you still don’t know that taking from the rich to give to the poor cannot reduce but only increase inequality and “social injustice.”

For you’re wasting your time and your students time on things that have nothing to do with economics. If I remember my Mises correctly, there is no mathematics in economics, no geometry, no curves, angles, or tangents.

Being a logical rather than mathematical science, economics does not need the foreign language of mathematics any more than Greek or Latin, supply and demand curves any more than Gregorian chants. It just needs plain English.

You said that you would not lower the level of discourse just for me.

Not just for me, professor, but for the world, and not lower but elevate it.

Come up to economics, the economics of Smith, Ricardo, Menger, and Mises, of its founders and pioneers, and not its hijackers and undertakers.

[Steve Horwitz]

Lesvic:

You see? It's not just me. You're starting to annoy our regulars, who really can carry on a conversation about economics. It's safe to say that I'd rather lose you than annoy them.

[DG Lesvic]

You mean a conversation about mathematics.

[DG Lesvic]

And, by the way, Professor, I hope you'll be happy with those sycophants who always admire the emperor's new clothes, and without that one rotten little kid who can never see them.

[Barkley Rosser]

Gosh. Having been sent to that jail cell in North Korea by DG Lesvic, I continue to have all sorts of fun experiences, including having my brain washed in the fourth rate detergent they have in this inefficient commie economy, as well as being regularly beaten with busts of the Dear Leader. However, I had a break recently.

A guard took me out for a walk in the compound and interrogated me about economics, in particular he said:
He: When we were last beating you and washing your brain, you kept mumbling about this "Mises" guy. Who is he?
Me: Well, he explains why your people are chronically starving to death.
He: Why is that?
Me: Because your farmers do not own the land they work and cannot buy inputs or sell outputs in a free market. They lack the incentives from keeping the money from selling what they produce if it is what people want to buy.
He: So, if we have a market capitalist economy, how can somebody buy land if they do not own it?
Me: Oh, they borrow from a bank, but have to pay interest on that as they pay back the loan. Their willingness to borrow will depend on that rate of interest and their expected returns, and how those relate to the price. There is a formula that lays this out precisely, but as that involves algebra, there is this guy in the US who says it is not appropriate to discuss it. But, in general the buyer will be more willing to borrrow a higher amount as this interest rate goes down and he has to pay less.
He: Well, that sort of makes sense. Does this always work well in the US economy?
Me: Well, most of the time, but occasionally things get out of hand and prices go up above what that formula says is the right price.
He: Well, how can that happen?
Me: It is not always clear, but if the rate of interest goes down too much, the price rises, and some people discover they can make money by buying and selling the real estate. This buying to sell at a higher price then pushes the price up some more.
He: Wont't the banks stop lending?
Me: Well, they sell off the mortgages to others who then repackage them into fancy assets, and lots of people start making money, at least for awhile, until the whole mess comes crashing down.
He: But aren't people smart enough to figure this out and avoid it?
Me: They should be, but making money really is pleasurable and they forget things, sort of like when your Dear Leader watches too many porno movies while guzzling Hennessey XO cognac.
He: Oh dear! Did your Mises know about this?
Me: I think so, but he does not seem to say too much about it. In Human Action Chap. 20, he does say that when credit contracts and there is a crash, historians should look at it, but otherwise the ugly details are not worth bothering with too closely.
He: They are not?
Me: He does not say it, but I think he views these sorts of things as being mere epiphenomena of the catallactic process.
He: What? What is that?
Me: Well, to explain that would involve philosophy. And I am not going to do that unless you stop beating me with those darned busts of your Dear Leader (or else get that Greg Ransom in here to explain it to you).
He: Why are you so down on the busts of the Dear Leader. They are merely epiphenomena of the catallactic process.

At that point I was centrally planning to explain to him the Hayekian information problems in central planning, but I was dragged back to my cell where (ouch! ouch! ouch!)...

[Roger Koppl]

Barkley,

Your slam on Mises is proof of how deeply flawed your character really is, as any halfway decent human being would agree. But I'm not sure I get what the slam was.

1. Mises didn't take bubbles seriously?

2. Mises didn't take empirics seriously?

3. Both?

4. Neither?

If 4, then what's your beef?

Sorry if I just need to improve my reading skills! And thanks in advance for catching me up.

[DG Lesvic]

Roger,

Let's see if your attack on Barkley's character will cause him to shrivel up and die. My guess is that he will survive and come roaring back strong as ever. But still it is good to know, isn't it, that Prof Horwitz is looking out for the more tender egos among us, even if it means silencing his own critics, which you know he just hates to do.

Barkley, you less than half way decent human being, which still puts you ahead of me, by some estimates,

Here's what Mises actually had to say about economic calculation.

"Socialism is not a realizable system of society's economic organization because it lacks any method of economic calculation."

Does that sound like a man who was against economic calculation?

You're confusing calculation in the market with calculation in economics.

Economics is the science of the universal, eternal, and immutable laws of the market, and there are no universal, eternal, and immutable interest rates in the market.

All of this reminds me of the story of Mises, responding to questions about his brother Richard, a prominent exponent of the mathematical method.

"He was a positivist!" was all Mises had to say about his own brother, and all he would say about the same sort of people here purporting to speak in his name.

[Roger Koppl]

DG, I can't tell when you are being ironic. In case you were not being ironic, let the record show that I consider my co-author J. Barkley Rosser Jr. a personal friend, that I admire him, and that I hold his character and ethics in high regard. I was being ironic when I pretended to question his character. My apologies, DG, if these remarks were unnecessary, but, as I said, I really can't when your are being ironic.

[Barkley Rosser]

Roger,

Hey, I had him being the leading explainer of why command socialist planning can lead to famines, even if DG does not think I stated it precisely correctly (Mises had several arguments, actually, which fit together, and the lack of a functioning profit motive lay behind the calculation problem).

To the extent I am slamming, it is on #1, which is a problem for all the older Austrians, near as I can tell, although Greg R. has pointed out to me offlist that Hayek at least recognized varying leverage as a factor in swelling up credit during a boom, which is not quite the same thing as a bubble, but getting there.

DG,

Sounds like Mises had a positive attitude about his brother.

[Barkley Rosser]

For the record, this is the closest I can find in Mises more exactly (Human Action, 3rd edn. p. 563)

"Accidental institutional and psychological circumstances generally turn the crisis into a panic. The description of these awful events can be left to the historian. It is not the task of the catallactic theory to depict in detail the calmities of panicky days and weeks and to dwell upon their sometimes grotesque aspects. Economics is not interested in what is accidental and conditioned by the individual historical circumstances of each instance. Its aim is, on the contrary, to distinguish what is essential and necessary from what is merely adventitious."

In other words, ain't no need for any economic theory of crashes as far as he is concerned.

[Roger Koppl]

Barkley,

As far as I can tell, you are right that Lu doesn't take bubbles seriously. Thanks for punching the HA quote which supports the point. I'm with you on that one. OTOH he lived through a hyperinflation the crash of Austrian culture. I think it's understandable if he makes the judgement that autonomous bubble are no big deal compared to the dangers of intervention such as and especially hyperinflation. I know you weren't really slamming him, at least not hard, as your comeback notes.

[Roger Koppl]

Gad, lots of typos. Sorry about that.

[DG Lesvic]

Roger and Barkley,

Sorry if I do you an injustice, but the two of you seem more like pranksters than serious economists.

[Barkley Rosser]

Roger,

Oh, I typoed in that quote. Should read "calamities," rather than "calmities," but probably most reading it figured it out.

And, clearly, once again you are destroying your rep by too openly hanging out with the reprobate likes of me.

DG,

Roger is a serious guy. I am the prankster, although I am prepared to blame you for getting me into that North Korean jail where (ouch! ouch! ouch!)...

[DG Lesvic]

Roger,

You wrote, to Barkley,

"Your slam on Mises is proof of how deeply flawed your character really is, as any halfway decent human being would agree."

How was I to know you didn't mean that?

Barkley,

I just heard something from a friend of mine at another blog that makes me think I might have misjudged you. If so, I'm truly sorry, but I am having a really hard time taking you seriously.

Other people seem to have the opposite problem with me, taking me too damn seriously.

This is almost like a WC Fields circus, with the two brothers, both of normal size, but the one the world's tallest midget whilst the other was the world's smallest giant.

If you're the mental midget I'm making of you, certainly the world's largest, and if I'm the giant they are so desperate to despatch, surely the world's smallest.

[GilesS]

"I'm the giant they are so desperate to despatch, surely the world's smallest."

You're quite modest for an intellectual giant.

[DG Lesvic]

Me, an intellectual giant? Hardly, despite the way these people view me. It took me five years to complete a four year college course, and with barely a C average, despite working my tail off.

But, at 77 years of age, I ought to know a bit more than people half my age.

You can have no idea how much us old folks love you wonderful young people here, despite our differences, and are pulling for you. We know we aren't going to be around much longer, and are turning the world over to you. You're our hope, and all we want is for you to succeed.

God bless you all, even Prof Horwitz, well, almost.

[Barkley Rosser]

Roger,

Your point about M and H being concerned about hyperinflation due to events in the former A-H Emprire in the early 20s is well taken, although not a substitute for a theory of speculation (other than that entrepreneurs are good speculators and that forex speculators necessarily must stabilize the market).

DG<

I am not as old as you, but no spring chicken by a long shot (over 60). While you were dumping on me as a "prankster," heck, my puckish conduct is part of trying to keep it light around here.

[DG Lesvic]

OK, so you're the lightweight champion of economics.

[Roger Koppl]

Barkley,

"although not a substitute for a theory of speculation"

Agreed.

I'm working a paper on such things. I'm going to say BRACE economics is coming. I don't like BRACE, however, because the E stands for Extra-market control. In that context, what exactly is a *theory* of speculation? In other words, what does your model, discussion, or whatever have to *do* to be a satisfactory *theory* of speculation? In particular, does it have to predict bubbles? Presumably not! But then what have you got besides the general possibility that a bubble might, well, bubble up at any time. I am not asking a fair question, but many thanks if you have an answer anyway.

[Barkley Rosser]

Roger,

"Forecasting" the beginning of bubbles is probably impossible. Historically the smaller ones seem to get triggered by an exogenous shock to a fundamental that sets the price(s) rising, which then picks up momentum and goes on its(their) merry way. The deeper mystery are the really big ones, including the most recent housing one. They seem to emerge for no clear reason at all, and indeed in my 1991 book I speculated (hah!) that they arise spontaneously out of a rising tide of optimism during a long boom "like Aprhodite out of the froth."

While I continue to be skeptical of these, there have been some more vigorous efforts to forecast peaks and crashes, with the latest effort by Didier Sornette and coauthors coming out in JEBO soon, although I retain questions about their approach, but, as you know, I have been modeling speculative dyanmics for some time, although would make no claims about ability to forecast.

DG,

You should understand that part of the reason I so willingly let myself go to a North Korean jail at your behest (I know, too heroic; better I went to some boring collective farm) is that I am really an outsider here, even if I am a card-carrying member of the SDAE. That this gang tolerates me is a sign of their open-mindedness and freedom-lovingness and all that stuff. Roger was not just addressing you when he was trying to defend me.

So, I am reasonably certain that I am the only SDAE member who is also a member of the editorial board of the Journal of Post Keynesian Economics (eeek!). Of course, its editor, Paul Davidson, has on numerous occasions denounced some of my work as "not Keynesian!" He keeps me around because I can deal with the more mathematical complexity papers that occasionally show up at the JPKE.

Which brings up another problem. There probabaly are a few JPKE board members and a few SDAE members who are also members of the Econometric Socieyt, but not many. I am (more eeeeeek!), which also shows this other side of my outsiderness, I am indeed way more the defender of evil math than anybody else around here (or there). There is no question that I am the only person who is simultaneously a member of all three: SDAE, JPKE board, and the Econometric Society (unmitigated eeeeeek!).

So, what on earth am I doing in all these places? Something about complexity...

[Rafe Champion]

Three strikes is supposed to be out!

[Roger Koppl]

Barkely,

Right, it seems too much to predict bubbles. You can call the at least some of the big ones when their raging, such as the recent housing bubble. There is always a reason to doubt that it is a bubble, however, a la Garber. That does not seem like a *theory* of bubbles, but a question of "applied economics." Is this a bubble? When will it burst?

If I want a theory of bubbles, then, it would seem the best I can do is comparative institutional analysis. I can identify the institutional factors, such as Big Players, influencing the likely size and persistence of bubbles. Can I do anything more than that? What should our epistemic ambitions be, especially considering the epistemological implications of economic complexity as laid out by Velupillai 2007 and Rosser?

[Rafe Champion]

Roger, can you get leads from forecasting in other kinds of complex systems, like the weather?

Of course plans and expectations are absent but the complexity is there.